Credit Vise Tightens for Small
And Midsize Businesses
Many small and midsize American businesses are still struggling to secure bank loans, impeding their expansion plans and constraining overall economic growth, even as the country tentatively rises from its recessionary depths.
Most banks expect their lending standards to remain tighter than the levels of the last decade until at least the middle of 2010, according to a survey of senior loan officers conducted by the Federal Reserve Board.
The enduring credit squeeze appears to reflect an aversion to risk among lenders confronting great uncertainty about the economy rather than any lingering effects of the panic that gripped financial markets last fall, after the collapse of the investment banking giant Lehman Brothers.
Bankers worry about the extent of losses on credit card businesses as high unemployment sends cardholders into trouble. They are also reckoning with anticipated failures in commercial real estate. Until the scope of these losses is known, many lenders are inclined to hang on to their dollars rather than risk them on loans to businesses in a weak economy, say economists and financial industry executives.
“The banks are just deathly afraid,” said Sam Thacker, a partner at Business Finance Solutions in Austin, Texas, which helps small businesses line up financing. “I don’t see commercial banks coming back to the market anytime soon.”
In the long view, tighter loan standards seem healthy after a terrible crisis attributed in part to years of recklessly lenient lending. But some economists worry that bankers have overshot the boundaries of a healthy reaction, as even strong companies are finding it difficult to borrow.
Canada Seeks Redress
On U.S. Hog Labeling Law
Ratcheting up a trade dispute with the Obama administration, Canada is asking the World Trade Organization to rule against an American food-labeling law that it claims is helping to destroy much of its hog-farming industry.
The dispute concerns a U.S. rule requiring that food products be labeled by country of origin. The Obama administration denies that the labeling policy is an act of protectionism, even though it is driving American pork producers to decrease purchases of Canadian hogs, traditionally about 7 percent of the pork consumed in the United States.
The reduction in imports has brought some short-term relief to American hog farmers suffering from high feed prices and low domestic and export sales. The industry says sales have been hurt by unfounded consumer concerns about catching swine flu from eating pork.
The new regulations require American companies to track and label the country of origin of meats and produce at all stages of production and sale, except at restaurants. Some consumer and food-safety groups like the regulations as a means of giving consumers more information about the food they buy. But other experts say the regulation has created cumbersome record-keeping problems that effectively favor domestic producers.
Cleansing the Air at
The Expense of Waterways
For years, residents here complained about the yellow smoke pouring from the tall chimneys of the nearby coal-fired power plant, which left a film on their cars and pebbles of coal waste in their yards. Five states — including New York and New Jersey — sued the plant’s owner, Allegheny Energy, claiming the air pollution was causing respiratory diseases and acid rain.
So three years ago, when Allegheny Energy decided to install scrubbers to clean the plant’s air emissions, environmentalists were overjoyed. The technology would spray water and chemicals through the plant’s chimneys, trapping more than 150,000 tons of pollutants each year before they escaped into the sky.
But the cleaner air has come at a cost. Each day since the equipment was switched on in June, the company has dumped tens of thousands of gallons of wastewater containing chemicals from the scrubbing process into the Monongahela River, which provides drinking water to 350,000 people and flows into Pittsburgh, 40 miles to the north.
2 U.S. Social Scientists
Share Nobel in Economics
The Nobel Memorial Prize in Economic Sciences was awarded on Monday to two American social scientists for their work in describing the numerous relationships within a company or among companies and individuals that shape market behavior.
The prize committee cited Elinor Ostrom, 76, at Indiana University, and Oliver E. Williamson, 77, at the University of California, Berkeley, for work done over long careers. Ostrom is the first woman to receive the economics prize in the 41-year history of the award. She is a political scientist, not an economist, and in honoring her, the judges seemed to suggest that economics should be thought of as an interdisciplinary social science rather than a pure science governed by mathematics.
“This award is part of the merging of the social sciences,” said Robert J. Shiller, a Yale University economist. “Economics has been too isolated and too stuck on the view that markets are efficient and self-regulating. It has derailed our thinking.”
The Nobel judges in Stockholm notified the winners when it was 6:30 a.m. in Bloomington, Ind., where Ostrom lives, and 3:30 a.m. in California. Williamson’s grown son, home on a visit, answered the ringing telephone and passed the call to his father, awakening him. Ostrom said she, too, was awakened by the call and afterward made herself a cup of coffee in the kitchen. Both expressed surprise that the award had come their way. They will split $1.4 million in prize money.